Age of ‘Massive’ House Price Rises May Be Nearing an End: Government Economist

An aerial view of terraced houses in south west London, UK, on Aug. 13, 2017. (Victoria Jones/PA)

The age of “massive rises of house prices” may be coming to an end, a senior economist from the government’s spending watchdog has said.

Prof. David Miles, one of the three members of the top committee of the Office for Budget Responsibility (OBR), said on Wednesday that an increase in remote working following the outbreak of the COVID-19 pandemic will lead to less upward pressure on residential property prices, as it has given many people more options about where they can live.

In addition, the slowing population growth and the rise in borrowing costs are also factors that will make runaway house price growth less likely, he said.

In a speech at an Economic Statistics Centre of Excellence conference in London, Miles said: “If anything, this unusual age of massive rises of house prices may be nearing an end.

“Those forces driving them up are going to be much weaker, I suspect, in the next 40 years than they have been in the past 40 years,” he said.

Miles, a former member of the Bank of England’s Monetary Policy Committee, said that house prices have risen faster in the UK than in many other similar countries because house building has failed to keep pace with population growth.

But, he said, upward pressure on prices is likely to ease in the coming years as interest rates rise and birth rates decline.

Weakening Property Market

UK house prices have risen enormously over the past 50 years.

House prices at the end of 2018 were around 3.5 times higher in real terms than at the end of 1968, according to a Bank of England research paper (pdf) Miles co-authored.

According to the Office for National Statistics (ONS), the average residential property cost £288,000 in February, an increase of around 91 percent since 2005.

But the housing market is weakening.

Though the average price in February was £16,000 higher than 12 months earlier, it was £5,000 below a recent peak in November 2022.

Annual house price growth in February 2023 was less than half the rate seen in July last year when it was running at 14.4 percent.

On a month-on-month basis, the ONS said average house prices fell in February this year for the third month in a row.

Recent HM Revenue and Customs (HMRC) figures also show a slowdown in house sales.

Some 90,340 house sales were recorded in February 2023, which was 18.2 percent lower than in February 2022 and 4.1 percent lower than in January 2023.

Further Decline Expected

According to Halifax, the average house price fell by about £1,000 in April, following three months of increases.

Across the UK, the typical property value fell by 0.3 percent month-on-month, taking it to £286,896 in April, Halifax said.

Halifax said it expects to see further downward pressure on house prices over the course of this year.

The OBR predicted in November that house prices will drop by 9 percent between the fourth quarter of 2022 and the third quarter of 2024.

Average interest rates on the stock of outstanding mortgages are expected to peak at 5 percent in the second half of 2024, the highest level since 2008, the watchdog said.

As the economy recovers, house prices are expected to be around seven times earnings, although the OBR said there is significant uncertainty over its forecast given “the sensitivity of house prices to mortgage rates” and the volatility in the financial market last autumn.

Average mortgage rates rose significantly following the “mini-budget” adopted by former Prime Minister Liz Truss and her Chancellor Kwasi Kwarteng in September last year.

Mortgage rates have since stabilised, though they remain above the average of recent years.

PA Media contributed to this report.